In the firm’s latest Compass report, Gardiner stresses returns may be “less vigorous, but more balanced”.
He said investors are paying too little attention to the underlying growth potential of the “big” economies: “A world in which stock valuations are fuller, and liquidity injections are beginning to fade, is one in which returns are likely to be more muted than in 2013 – even as the economic backdrop improves,” he said.
The firm’s tactical allocation committee is currently overweight cash in anticipation of further setback for stocks. Gardiner believes investments which benefit from growth, as opposed to safe haven assets, should continue to account for the lion’s share of balanced, moderate-risk portfolios.
“We doubt however that the gap between the performance of developed stocks and other asset classes will be as wide this year as last,” he added.
“Corporate profitability is likely to stay healthy, and valuations look reasonable (if no longer cheap). Meanwhile, most bonds still look expensive, even though yields are higher than last year and inflation may stay lower for a little longer.
“We also think it is probably too soon to turn tactically more positive on the emerging world. We are most wary of emerging bonds and currencies: stocks look better value, but even there we think it may be premature to turn tactically positive, even after their further slide in the New Year.”
